You wouldn't buy a fund without considering fees, but failure to inspect the tracking difference of an exchange traded fund (ETF) could be just as severe an oversight.
Tracking difference looks at the overall difference between the ETF's performance and the performance of the index that it aims to replicate over a particular period. When examining charges, you know it will have a direct drag on the performance of your investment, and negative tracking difference, ie the ETF underperforming its index, has the exact same impact on performance.
So, particularly if you're a long-term investor, tracking difference is as important as the fees you pay to be in the fund. You won't know the total costs of buying it if you can't see the tracking difference, so, in other words, checking tracking difference is essential.
To continue reading, register today
to enjoy limited access to the following:
- Daily trading news
- Funds coverage
- Features on big investment themes
- Comprehensive companies coverage
- Economic analysis